Global Economics

British Car Firms: Go Green To Get Aid

The government's Business Secretary says the rescue package for Britain's ailing motor industry is aimed at developing green technology

Lord Mandelson faced charges of producing too little and acting too late as he set out a £2.4bn rescue package for Britain's beleaguered car industry. The Business Secretary linked the cash—which was far less than the £13bn demanded by the unions—to manufacturers developing green technology.

Lord Mandelson insisted he was not offering a "bailout" for the motor industry, which employs nearly one million people from the shopfloor to showroom. He argued that the investment would help car companies become "greener, more innovative and more productive".

Car sales have collapsed by a half since the recession began to bite and several car-makers have been forced to cut workers' hours in an attempt to avoid redundancies.

The unions said the proposals did little to prevent the loss of thousands of jobs and were dismissed by the new shadow Business Secretary, Kenneth Clarke, as "small beer".

The package comprised:

* Government guarantees to unlock up to £1.3bn of loans from the European Investment Bank to develop green technology.

* Loans worth up to £1bn to invest in low-carbon engines.

* A £5m scheme to help the car companies improve their business performance.

* A £35m boost to train workers at component suppliers.

Lord Mandelson also announced that the new trade and investment minister, Mervyn Davies, would draft plans to encourage more car buying. Mr Davies will seek ways of providing cash for car finance firms offering cheap deals, particularly for cars made in Britain. Lord Mandelson said: "Today's measures will provide a specific boost to the industry, providing real help and laying the foundations of its reinvention for a low-carbon future."

But Lord Hunt of Wirral, a Tory business spokesman, protested: "Once again, the Government offers too little, too late." Mr Clarke, in his first Commons speech, suggested the cash available to the motor industry had been pared back by the Treasury.

He told MPs: "I have to say I'm slightly disappointed. I thought the secretary of state who I am shadowing would produce some new ideas, some dynamite." Tony Woodley, joint general secretary of Unite, said: "This will come as a massive disappointment to the tens of thousands of workers employed in or dependent on this vital industry. This is a fraction of the support being given by almost every other government in Europe. Ministers need to more than double the money available and do so immediately."

The car industry's response to the proposals was muted ahead of a major meeting this morning to discuss the plan. Manufacturers welcomed recognition of the sector's importance to the economy, but raised concerns about the substance of the package.

The sector's problems are caused by falling customer demand and the lack of credit for both potential buyers and the businesses themselves. Neither is much helped by loan guarantee schemes only available to "lower-carbon initiatives", say sceptics.

A source at one large car company said: "We will have to talk to them tomorrow to get a better understanding of the details, but at this stage it looks like measures addressing long-term issues rather than the acute, short-term crisis."

Professor Garel Rhys, of the Centre for Automotive Research at Cardiff Business School, said: "These initiatives are for the long-term, they do not address short-term problems. Companies need working capital to fund their normal activities, buying stock and so on, so they can stay in business."

Car rescue package: How does Britain's compare?

The size of the industry

UK 200,000 people making cars and components.

US 1.4 million jobs, predominantly in and around Detroit.

France 800,000, most at Renault and Peugeot Citroën.

The scale of the problem

UK Some 20 per cent fewer cars were sold last year, compared with 2007. Thousands of jobs have already been axed and all major manufacturers have cut production.

US The "Big Three"—General Motors, Chrysler and Ford—are currently experiencing sales down by 40 per cent, 34 per cent and 31 per cent respectively. Japanese manufacturers such as Toyota and Nissan fared better, but still not well.

France Total car sales were down by 30 per cent in 2008. Peugeot Citroën alone sold 170,000 fewer cars last year than it did in 2007.

The response

UK Peter Mandelson, the Business Secretary, announced loan guarantees worth £2.3bn yesterday. The package equates to about £115 per job.

US The US government approved $17.4bn (£12.3bn) of loans for GM and Chrysler. The fund is worth £390 per employee.

France The Prime Minister François Fillon announced a €6bn (£5.6bn) bailout, in return for a guarantee that factories stay open and jobs are saved. The plan equates to £70 per job.